Instruction: I know you studied well. Don’t insult yourself, don’t cheat.

Good Luck and God bless

Multiple Choice:

1. A basic assumption of accounting that requires activities of an entity be kept separate from the activities of its owner is referred to as the
a. stand alone concept
b. monetary unit assumption
c. corporate form of ownership.
d. Business entity assumption

2. The basic accounting equation may be expressed as

a. Assets = Equities.
b. Assets – Liabilities = Owner's Equity.
c. Assets = Liabilities + Owner's Equity.
d. all of these
3. If total liabilities increased by 15,000 and owner’s equity increased by 5,000 during a period of time, then total assets must change by what amount and
direction during that same period?
a. 20,000 decrease
b. 20,000 increase
c. 25,000 increase
d. 30,000 increase

4. Owner's equity is increased by

a. Revenues
b. Expenses
c. Liabilities
d. Drawings

5. Net income results when

a. Assets > Liabilities.
b. Revenues = Expenses
c. Revenues > Expenses.
d. Revenues < Expenses.

Use the following information for questions 6-9

Jimmy's Car Repair Shop started the year with total assets of 270,000 and total liabilities of
180,000. During the year, the business recorded 450,000 in car repair revenues, 255,000 in
expenses, and Jimmy withdrew 45,000.

6. Jimmy's Capital balance at the end of the year was

a. 240,000.
b. 225,000
c. 285,000
d. 195,000

7. The net income reported by Jimmy's Car Repair Shop for the year was
a. 150,000
b. 195,000
c. 90,000
d. 405,000

8. Jimmy's Capital balance changed by what amount from the beginning of the year to the end of the year?
a. 45,000
b. 195,000
c. 90,000
d. 150,000
 9. The ending owner's equity amount is shown on
a. the balance sheet only
b. the owner's equity statement only
c. both the income statement and the owner's equity statement
d. both the balance sheet and the owner's equity statement.

10. The purchase of supplies for cash will result in a/an

a. increase in cash and a decrease in capital
b. increase in cash and an increase in supplies
c. increase in supplies and a decrease in cash
d. increase in equipment and an increase in capital

11. One of the local fast-food outlets hired a first-year accounting student to oversee the cash-collection procedures
a. increase an asset, increase a liability
b. increase an asset, increase owner's equity
c. No effect on the accounting equation
d. decrease an asset, decrease owner's equity

12. Internal users of accounting information include all of the following except
a. company officers.
b. investors.
c. marketing managers
d. production supervisors

13. Morreale Beaver Company buys a 12,000 van on credit. The transaction will affect the
a. income statement only
b. balance sheet only
c. income statement and owner's equity statement only
d. income statement, owner's equity statement, and balance sheet.

14. In a service-type business, revenue is considered earned

a. at the end of the month
b. at the end of the year
c. when the service is performed
d. when cash is received

15. The matching principle matches

a. expenses with revenues.
b. assets with liabilities
c. customers with businesses
d. creditors with businesses

Use the following information for questions 16-17

Sheepskin Company had the following transactions during 2018

 Sales of 4,500 on account

 Collected 2,000 for services to be performed in 2019
 Paid 625 cash in salaries
 Purchased airline tickets for 250 in December for a trip to take place in 2019

16. What is Sheepskin’s 2008 net income using accrual accounting?

a. 3,875
b. 5,875
c. 5,625
d. 3,625

17. What is Sheepskin’s 2008 net income using cash basis accounting
a. 5,875
b. 1,375
c. 5,625
d. 1,125

18. An adjusting entry

a. is always a compound entry.
b. affects two balance sheet accounts.
 c. affects a balance sheet account and an income statement account
d. affects two income statement accounts.

19. On Dec 1, Dexter Shoe Store paid 8,000 to Ace Realty for 4 month rent beginning Dec 1. Prepaid Rent was debited for the full amount. If financial
statements are prepared on Dec 31 31, the adjusting entry to be made by Dexter Shoe Store is
a. Debit Rent Expense, 8,000; Credit Prepaid Rent, 2,000
b. Debit Prepaid Rent, 2,000; Credit Rent Expense, 2,000
c. Debit Rent Expense, 8,000; Credit Prepaid Rent, 8,000
d. Debit Rent Expense, 2,000; Credit Prepaid Rent, 2,000

20. Younger Corporation purchased a one-year insurance policy in May 2018 for 48,000. The insurance policy is in effect from May 2018 through April 2019. If
the company neglects to make the proper year-end adjustment for the expired insurance
a. Net income and assets will be understated by 32,000
b. Net income and assets will be overstated by 16,000.
c. Net income and assets will be overstated by 32,000
d. Net income and assets will be understated by 16,000

21. Sue Smiley, CPA, has billed her clients for services performed. She subsequently receives payments from her clients. What entry will Sue make upon receipt
of the payments?
a. Debit Unearned Revenue and credit Service Revenue
b. Debit Cash and credit Accounts Receivable
c. Debit Accounts Receivable and credit Service Revenue
d. Debit Cash and credit Service Revenue

22. In a perpetual inventory system, cost of goods sold is recorded

a. on a daily basis
b. with each sale
c. on a monthly basis
d. on an annual basis

23. Which of the following expressions is incorrect?

a. Gross profit – operating expenses = net income
b. Sales – cost of goods sold – operating expenses = net income
c. Net income + operating expenses = gross profit
d. Operating expenses – cost of goods sold = gross profit

24. Sales revenue less cost of goods sold is called

a. net profit.
b. Gross receipts
c. gross profit
d. net income
25. A perpetual inventory system would likely be used by a(n)
a. automobile dealership
b. hardware store
c. convenience store
d. drugstore

26. The journal entry to record a return of merchandise purchased on account under a periodic inventory system would credit
a. Accounts Payable
b. Purchase Returns and Allowances
c. Merchandise Inventory
d. Sales

27. Bryan Company purchased merchandise from Cates Company with freight terms of FOB shipping point. The freight costs should be paid by the
a. Seller
a. Buyer
b. transportation company
c. buyer and the seller

28. Flynn Company purchased merchandise inventory with an invoice price of 5,000 and credit terms of 2/10, n/30. What is the net cost of the purchases if
Flynn Company pays within the discount period?
a. 5,000
b. 4,900
c. 4,500
d. 4,600
 29. When goods are returned that relate to a prior cash sale
a. the Sales Returns and Allowances account should not be used
b. the cash account will be credited
c. Sales Returns and Allowances will be credited
d. Accounts Receivable will be credited

30. The respective normal account balances of Sales, Sales Returns and Allowances, and Sales Discounts are
a. credit, credit, credit
b. debit, credit, debit
c. credit, debit, debit
d. credit, debit, credit

31. All of the following are contra revenue accounts except

a. Sales
b. sales allowances
c. sales discounts
d. sales returns

32. In preparing closing entries for a merchandising company, the Income Summary account will be credited for the balance of
a. Sales
b. merchandise inventory
c. sales discounts
d. freight-out

33. Thelman Company reported the following balances at June 30, 2018

Sales 10,800
Sales Returns and Allowances 400
Sales Discounts 200
Cost of Goods Sold 5,000

Net sales for the month is

a. 10,800
b. 10,400
c. 10,200
d. 5,200

34. The gross profit rate is computed by dividing gross profit by

a. cost of goods sold
b. net income
c. Sales
d. Operating Expense

Use the following information for questions 35–36.

Financial information is presented below:

Operating Expenses 45,000
Sales Returns and Allowances 13,000
Sales Discounts 6,000
Sales 150,000
Cost of Goods Sold 67,000

35. Gross profit would be

a. 77,000.
b. 64,000
c. 70,000
d. 83,000

36. The gross profit rate would be

a. .535
b. .489
c. .511
d. .553

37. Baden Shoe Store has a beginning merchandise inventory of 30,000. During the period, purchases were 140,000; purchase returns, 4,000; and freight-in
10,000. A physical count of inventory at the end of the period revealed that 20,000 were still on hand. The cost of goods available for sale was
a. 164,000
b. 156,000
c. 176,000
 d. 184,000

38. A post-closing trial balance will show

a. zero balances for all accounts
b. zero balances for balance sheet accounts
c. only balance sheet accounts
d. only income statement accounts

39. Which of the following items is not recorded in a cash disbursements journal?
a. Payments for services purchased on account
b. Loans received from a bank
c. Payments for purchases of goods on account
d. Cash purchases

40. What special journal is used for the transaction "sold merchandise on account"
a. general journal
b. sales journal
c. cash disbursement journal
d. cash receipts journal

41. Working capital is a measure of

a. Consistency
b. Liquidity
c. Profitability
d. Solvency

42. The difference between the balance of a fixed asset account and the related accumulated depreciation account is termed
a. contra asset
b. book value
c. liability
d. market value

43. Which of the following is not an activity listed in the statement of cash flows?
a. Investing Activities
b. Funding Activities
c. Operating Activities
d. Financing Activities

44. The one characteristic that all entries recorded in a cash receipts journal have in common is
a. a credit to the Cash account.
b. that they all represent collections from customers
c. that they originate from the sales of merchandise
d. a debit to the Cash account

45. If merchandise from a cash sale is returned by a customer for a refund, the sales return is recorded in the
a. general journal
b. cash receipts journal
c. cash payments journal
d. sales journal

46. Debit postings to the individual accounts in an accounts receivable subsidiary ledger generally come from the
a. sales journal
b. cash receipts journal
c. purchases journal
d. cash payments journal

47. If a customer takes a cash discount, an entry is made in the

a. general journal
b. cash payments journal
c. sales journal.
d. cash receipts journal

48. Which of the following accounts will normally appear in the ledger of a merchandising company that uses a perpetual inventory system?
a. Purchases
b. Freight In
c. Cost of Goods Sold
d. Purchase Discount

49. Gross profit will result if:

a. operating expenses are less than net income
b. sales revenues are greater than operating expenses.
c. sales revenues are greater than cost of goods sold.
d. operating expenses are greater than cost of goods sold.

50. Office Equipment is classified in the balance sheet as

a. a current asset
 b. property, plant, and equipment.
c. an intangible asset
d. current liabilities

51. On October 1 Beta Company purchased 6,000 worth of goods on terms 2/15, n/30.Freight of 500 was prepaid by the seller under FOB Shipping Point, goods
worth 1,000 were returned and the account was paid on October 3. Discount received from the seller was
a. 110
b. 100
c. 90
d. 130
e. 120

52. X Company recorded a net loss of 40,000. Its net sale was 200,000 and gross profit was 40% of net sales. Operating expenses amounted To
a. 160,000
b. 60,000
c. 40,000
d. 120,000

53. On May 1, 2018, JJ Company sold goods to DEF for 5,000 on terms 2/10, 1/20,n/30. Freight of 500 was prepaid under the Term FOB Destination. DEF
Returned worth 1,000 To JJ and DEF paid the balance on May 15. Discount given to DEF was
a. 80
b. 40
c. 100
d. 50

54. Refer to number 53. The net sale was

a. 4,500
b. 4,000
c. 3,960
d. 3,920

55. Net Sales amounted to 50,000 with cos of sales representing 75% . If Operating expense is 10% of net sales, the gross profit should be
a. 7,500

b. 12,500

b. 10,000